GreenFirst Reports Strong Results for the Second Quarter of 2022

GreenFirst Forest Products Inc.(“GreenFirst” or the “Company”) announced results for the second quarter of 2022. The Company’s condensed consolidated interim financial statements and related Management Discussion and Analysis (“MD&A”) are available on GreenFirst’s website at www.greenfirst.ca and on SEDAR at www.sedar.com. All amounts are in thousands of Canadian dollars unless indicated otherwise.

Second Quarter of 2022 Highlights

• Second quarter 2022 (“Q2 2022”) net earnings were $29.5 million or $0.15 per share (diluted), compared to $34.0 million or $ 0.18 per share in the first quarter of 2022 (“Q1 2022”). This was the Company’s third full quarter operating its acquired forest-products assets.
• Q2 2022 Adjusted EBITDA was $54.3 million, a 21% increase compared to Adjusted EBITDA in Q1 2022. Adjusted EBITDA before duties expensed for Q2 2022 was $76.6 million, compared to $61.3 million in Q1 2022.
• Lumber pricing remained strong in Q2 2022, with an average selling price of $1,255/mfbm compared to $1,325/mfbm in Q1 2022. Rising interest rates and inflation headwinds, coupled with macro supply tightening and the risk of disruptions to lumber supply underlies our expectation of continued volatility in lumber prices.
• The Company made a voluntary repayment of US$8.9 million on its outstanding term debt during the second quarter of 2022.
• Asset-backed revolving loan facility of $65.0 million was undrawn at quarter end and has remained undrawn at August 10, 2022. Strong operating cash flow continues to fund working capital needs. Cash and equivalents ended Q2 2022 with a balance of $74.2 million.

“We were pleased to see positive lumber markets in Q2 which contributed to strong earnings” said Rick Doman, CEO of GreenFirst. “Our earnings reflect the favourable pricing in lumber and improved transportation logistics, as we expect sales volumes to remain strong and inventory levels to continue to drop in the coming quarter. We continue to focus on investing in our operations to improve productivity and recovery.”

Acquisition of Sawmills and Paper Mill

On August 28, 2021, the Company acquired six sawmills and one paper mill from Rayonier Advanced Materials (the “Rayonier Asset Acquisition”) for aggregate consideration of $293.7 million. The Company has measured and recorded the identifiable assets acquired and the liabilities assumed at management’s estimates of their acquisition-date fair values. As the acquisition is within the measurement period, the Company and its external valuation experts are still assessing acquisition date fair value adjustments, including fair values of property, plant and equipment and related depreciation charges, leases and estimated final purchase price adjustments related to inventory and other items. For further information on the purchase price accounting, please refer to the Company’s second quarter interim financial statements.

Financial Highlights

The following selected financial information is from the Company’s second quarter interim financial statements and MD&A:

		June 25,		March 26,		June 30,
For the quarter ended		2022		2022		2021
Net sales
Forest products(1)		$191,828		$158,084		$            —
Paper products		22,736		14,684		—
Total net sales		214,564		172,768		—
Operating earnings (loss)		48,628		38,969		(2,438)
Net earnings (loss) for the period		29,518		34,043		(2,532)
Basic earnings (loss) per share		0.17		0.19		(0.10)
Diluted earnings (loss) per share		0.15		0.18		(0.10)
Adjusted EBITDA(2)		54,307		44,864		(2,460)

For the two quarters ended	June 25, 2022	June 30, 2021
Net sales
Forest products (1)	$    349,912	$                —
Paper products	37,420	—
Total net sales	387,332	—
Operating earnings (loss)	87,597	(3,788)
Net earnings (loss) for the period	63,561	(4,086)
Basic earnings (loss) per share	0.36	(0.17)
Diluted earnings (loss) per share	0.33	(0.17)
Adjusted EBITDA (2)	99,171	(3,908)

¹ Includes net sales to external parties only.

² Adjusted EBITDA is a Non-GAAP measure and does not have standardized meaning under GAAP or IFRS. As a result, it may not be comparable to information presented by other companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the Reconciliation of Adjusted EBITDA section below.

As at	June 25, 2022	December 31, 2021
Total assets	$ 495,352	$ 415,937
Total liabilities	203,761	186,778
Total shareholders’ equity	291,591	229,159

During Q2 2022 the Company recorded net earnings of $29.5 million ($0.15 per share, diluted) and Adjusted EBITDA of $54.3 million. This was a decline of 13% and improvement of 21%, respectively, compared to Q1 2022.

The Company reported net sales of $214.6 million during Q2 2022, an improvement of $33.7 million or 21%, compared to Q1 2022. This increase was primarily due to higher volumes for lumber and paper sales as some of the logistics disruptions seen in Q1 2022 began to subside.

The Company reported cost of sales of $139.1 million during Q2 2022, higher by $28.5 million or 26%, compared to Q1 2022. This increase correlates with higher lumber production and lumber sales in Q2 2022, compared to Q1 2022, which was impacted by harsh winter weather and increases in COVID-19 cases, both factors which improved in Q2 2022.

The Company reported selling, general and administration expenses of $6.9 million during Q2 2022 which was an increase of $0.9 million compared to Q1 2022, primarily reflecting the ramp up of the Company’s corporate activities and associated growth in headcounts. This was partially offset by lower information technology set-up costs and lower costs related to transitional services.

The Company’s softwood lumber sales to US customers are subject to countervailing and anti-dumping duties as determined by the US Department of Commerce. Duties expensed in Q2 2022 were $22.3 million, an increase of $5.9 million or 36%, quarter-over-quarter, which was driven by higher volumes shipped and exported compared to Q1 2022. Excluding the impact of duties expensed, Adjusted EBITDA for the second quarter and two quarters ended June 25, 2022 was $76.6 million and $137.9 million, respectively.

Finance costs, which include interest and accretion on the Company’s borrowings under the senior secured term credit facility, was $4.0 million in Q2 2022.

Liquidity and Borrowings

At June 25, 2022, the Company had total liquidity of $125.4 million comprised of $74.2 million in cash on hand and $51.2 million available on its $65.0 million asset-backed revolving loan (“ABL) facility, which remains undrawn and is net of $13.8 million of capacity taken up by standby letters of credit.

At June 25, 2022, the Company had $106.6 million of borrowings under its senior secured term credit facility, net of deferred financing costs. The credit agreement contains restrictive covenants that limit the Company’s ability to undertake certain actions without the lender’s consent; it also includes the following financial covenant tests performed quarterly: a maximum leverage ratio; a minimum fixed-charge coverage ratio and a minimum liquidity requirement, all as defined in the term-loan agreement. The Company monitors its performance monthly as well as its future expected performance, adjusting as required in relation to these covenants.  The Company is fully compliant with its secured term loan debt covenants as at June 25, 2022. During the second quarter, the Company made a voluntary repayment of US$8.9 million, plus accrued interest, in addition to a scheduled US$1.25 million quarterly repayment due at the end of March 2022, together with accrued interest relating to Q1 2022.

Outlook

During the second quarter of 2022, rising interest rates in response to higher inflation represented a head wind to lumber demand. This was evidenced by a decline in lumber market prices during the middle of Q2 2022 although prices recovered in June. Throughout the quarter, there was some offsetting impact to these pressures driven by tightening lumber supply including the effects of international sanctions on Russia, barring Russian forest products from European markets.

COVID-19 continues to remain a concern through the remainder of 2022, while disruptions to modes of transportation used by the industry may also continue to be a factor that tightens the supply of lumber to the North American market, similar to what the market experienced during the first half of 2022.

The combination of macro supply tightening and the risk of disruptions to lumber supply within North America underlies our expectation of continued volatility in lumber prices. However, with further interest rate increases expected in 2022, we expect that the price levels will continue to be pressured.

Lumber prices have a material impact on the operating earnings of the Company and in the second quarter of 2022, a US $10/Mfbm difference in lumber prices would have impacted the Company’s operating earnings by approximately $1.5 million, assuming everything else remained constant. The Company currently does not have any hedges in place for lumber prices.

Inflationary pressures in North America have increased the cost of many inputs required for our operations. Furthermore, shortages of people, materials and equipment could negatively impact the Company, as well as the industry. Many of these pressures have been linked to the COVID-19 pandemic, which may still be a significant factor for the remainder of 2022.

Reconciliation of Adjusted EBITDA

References to EBITDA in this document are measures of earnings (loss) before interest and finance costs, income taxes, depreciation and amortization, while references to Adjusted EBITDA reflect EBITDA plus other non-operating costs such as acquisition and transaction-related costs, impact of valuation changes on the Company’s investments and the impact of foreign exchange on the Company’s long-term debt. Management believes that certain lenders, investors, and analysts use EBITDA and Adjusted EBITDA as a common valuation measurement and to measure the Company’s ability to service debt and meet other payment obligations, and as a common valuation measurement. EBITDA and Adjusted EBITDA are not intended to replace net earnings (loss), or other measures of financial performance and liquidity reported in accordance with GAAP. Please refer to the Company’s MD&A for further information on non-GAAP measures.

For the quarter ended	June 25, 2022	March 26, 2022	June 30, 2021
Net earnings (loss) for the period	$29,518	$34,043	$(2,532)
Adjustments:
Finance costs, net	4,034	3,621	72
Income taxes	11,633	2,806	—
Depreciation and amortization	5,679	5,895	—
EBITDA	50,864	46,365	(2,460)
Foreign exchange on long-term debt	4,086	(1,501)	—
Gain on investment	(643)	—	—
Adjusted EBITDA	$54,307	$44,864	$(2,460)

For the two quarters ended	June 25, 2022	June 30, 2021
Net earnings (loss) for the period	$63,561	$(4,086)
Adjustments:
Finance costs, net	7,655	178
Income taxes	14,439	—
Depreciation and amortization	11,574	—
EBITDA	97,229	(3,908)
Foreign exchange on long-term debt	2,585	—
Gain on investment	(643)	—
Adjusted EBITDA	$99,171	$(3,908)

For the complete press release, click here.

About GreenFirst Forest Products

GreenFirst Forest Products is a forest-first business, focused on sustainable forest management and lumber production. The Company owns 7 sawmills and 1 paper mill across Ontario and Quebec. GreenFirst is a significant lumber producer in Canada having an annual lumber production capacity of 905MMfbm, with a goal to increase. GreenFirst’s mills are located in rich wood baskets proudly operating over 9.2 million hectares of FSC® certified public and private Canadian forestlands (FSC®-C167905). The Company believes that responsible forest practices, coupled with the long-term green advantage of lumber, provide GreenFirst with significant cyclical and secular advantages in building products. GreenFirst’s long-term vision is to be a leader in the global forestry industry.

Source: GreenFirst Forest Products Inc.